3 Hunslett Express Company specifies payment from its customers at the end of the month following delivery.

On average, customers take 70 days to pay. Sales total £8 million per year and bad debts total £40,000 per year.

The company plans to offer cash discounts for payment within 30 days. It is estimated that 50 per cent of customers will take up the discount, but that the remaining customers will take 80 days to pay. The company has an overdraft facility costing 13 per cent p.a. If the proposed scheme is introduced, bad debts will fall to

£20,000 and savings in credit administration of £12,000 p.a. are expected.

Should the company offer the new credit terms?